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The Marginal Cost of Base‐Load Power: An Application to Alcoa's Portland Smelter

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  • PETER L. SWAN

Abstract

The aim of this paper is to develop and exposit the methodology underlying the computation of the long‐run marginal costs of ‘base‐load’ electricity supply by a publicly owned utility. The particular application is to the costing of power to be supplied by the State Electricity Commission of Victoria (SECV) to Alcoa's aluminum smelter at Portland in Victoria. The results suggest a sizeable subsidy element in the tariff which is sensitive to the selection of the real discount rate appropriate for the public provision of electricity.

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  • Peter L. Swan, 1983. "The Marginal Cost of Base‐Load Power: An Application to Alcoa's Portland Smelter," The Economic Record, The Economic Society of Australia, vol. 59(4), pages 332-344, December.
    • Handle: RePEc:bla:ecorec:v:59:y:1983:i:4:p:332-344
    DOI: 10.1111/j.1475-4932.1983.tb00823.x
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    1. J. Hirshleifer, 1966. "Investment Decision Under Uncertainty: Applications of the State-Preference Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 252-277.
    2. Jack Hirshleifer, 1958. "Peak Loads and Efficient Pricing: Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 72(3), pages 451-462.
    3. Ferry, C.R. & Duhs, E.J., 1979. "Discounting Australian Public Projects," Economic Analysis and Policy, Elsevier, vol. 9(2), pages 23-40.
    4. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 266-276, June.
    5. Kenneth J. Arrow & Robert C. Lind, 1974. "Uncertainty and the Evaluation of Public Investment Decisions," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 3, pages 54-75, Palgrave Macmillan.
    6. John T. Wenders, 1976. "Peak Load Pricing in the Electric Utility Industry," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 232-241, Spring.
    7. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 433-446.
    8. Bradford, David F, 1975. "Constraints on Government Investment Opportunities and the Choice of Discount Rate," American Economic Review, American Economic Association, vol. 65(5), pages 887-899, December.
    9. Peter O. Steiner, 1957. "Peak Loads and Efficient Pricing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 71(4), pages 585-610.
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    Cited by:

    1. Peter L. Swan, 1990. "Real Rates of Return in Electricity Supply: New South Wales, Tasmania and Victoria," The Economic Record, The Economic Society of Australia, vol. 66(2), pages 93-109, June.
    2. Simon Domberger & John Piggott, 1986. "Privatization Policies and Public Enterprise: A Survey," The Economic Record, The Economic Society of Australia, vol. 62(2), pages 145-162, June.
    3. Peter Hartley & Chris Trengove, 1984. "The Marginal Costs of Electricity Supply in Victoria," The Economic Record, The Economic Society of Australia, vol. 60(4), pages 340-355, December.
    4. Jeff Bateson & Peter L. Swan, 1989. "Economies of Scale and Utilization: An Analysis of the Multi‐Plant Generation Costs of the Electricity Commission of New South Wales, 1970/71–1984/85," The Economic Record, The Economic Society of Australia, vol. 65(4), pages 329-344, December.

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